AUD/USD was trading with a soft tone yesterday around 0.6950 throughout the day, holding on to modest intraday gains after opening with a small bullish gap on Monday morning. The USD was on the backfoot for most of the day, besides against the JPY, but regained some ground at the end of the day, despite a holiday in the US keeping local markets closed. The lack of demand for the USD throughout the first half of the day helped AUD/USD reach an intraday high of 0.6995, but was rejected by the 20 SMA (gray).

The Reserve Bank of Australia (RBA) published the Minutes of its last meeting in early June, when they surprised markets by raising the cash rate by 0.50%. from 0.35% to 0.85%. The main take from the Minutes was on whether the RBA is willing to maintain the pace of rate hikes further ahead this year. They will keep hiking but won’t go crazy, according to governor Lowe. That will leave the AUD soft for the coming weeks.

AUD/US H4 Chart – Moving Averages Turning Into Resistance

AUD buyers failing at the 50 SMA

Reserve Bank of Australia Governor Lowe Speech

• Australians should be prepared for more interest rate increases
• Level of rates still very low for an economy with low unemployment, high inflation
• Wants to emphasise that we are not on a pre-set path on rates
• Pace and extent of hikes will be guided by the incoming data
• Will be watching carefully how household spending responds to rising rates
• Board committed to doing what is necessary to return inflation to 2-3% target
• Want to ensure inflation expectations remain anchored
• Now expect CPI inflation to peak around 7% in Q4, then decline
• Higher global interest rates will lessen current inflationary pressures
• Growth in domestic spending is stretching the economy
• Many firms reporting the availability of labour is a significant constraint
• End of yield target was disorderly, caused some reputational damage to rba

• We discussed 25 or 50bp at the June meeting, will discuss 25 or 50 at the July meeting as well
• High inflation is cutting into people’s real incomes
• Conscious that households have more debt, but also have more assets
• Household spending has been pretty resilient
• Does not see a recession on the horizon
• Don’t think that the unemployment rate needs to rise to get inflation done
• It is possible the u/e rate will rise, it is a narrow path we are on
• Underlying inflation to return to band in a couple of years
• A 4% cash rate by year end – “I don’t think it’s particularly likely”
• It would have a first order impact on the economy
• Still wanting to see annual wage growth of 3.5%
• Ongoing wage growth in a 4 to 5 % range would make it harder to get inflation down

The next Reserve Bank of Australia meeting is on July 5. The RBA schedule is to meet on the first Tuesday of each month (except there is no meeting January – Australia is at the beach!)

UD/USD Live Chart